End of the road for Pawson case

Lord Justice Briggs has today (2 October 2013) refused the taxpayer’s leave to appeal to the Court of Appeal in the case of HMRC v Pawson [2013] (UKUT 050 (TCC).

The case concerned a claim for inheritance tax business property relief (BPR) in relation to a furnished holiday let (FHL) and the First-tier Tribunal (FTT) had originally allowed the relief but the decision was overturned by Mr Justice Henderson in the Upper Tribunal (UT) in February of this year.

Leave to appeal to the Court of Appeal had already been denied by the UT and by the Court of Appeal in response to a written application, so this oral application was the final chance.

In refusing Keith Gordon’s application on behalf of the taxpayer, Lord Justice Briggs accepted that this was a matter of general importance; however, he refused leave to appeal on the grounds that there was no realistic prospect of success before the Court of Appeal.  In coming to this conclusion, Lord Justice Briggs agreed:

  • That, in relation to land based businesses, there was a ‘spectrum’ at one end of which were businesses (such as hotels) where large numbers of services were provided in addition to the simple use of the land and which qualified for BPR, and those at the other end where no additional services were provided, which did not (such as ordinary property lets).
  • That there was no presumption that a land based business was an ‘investment’ business for BPR purposes and that in each case a decision had to be made as to where on the spectrum the business lay.

Keith Gordon argued that, the above being the case, it had been legitimate and reasonable on the facts presented to it for the FTT to conclude that the business in Pawson lay at the end of the spectrum qualifying for BPR. He argued that in overturning that decision Mr Justice Henderson in the UT had started on the ‘wrong foot’ with a presumption that a land based business should not qualify or had misunderstood the nature of a furnished holiday let, and that there was no legitimate case for overturning the FTT decision.

Lord Justice Briggs felt that Mr Justice Henderson had understood the nature of the business under consideration and that simply because the FTT had reached a decision based upon the facts before it, did not mean that that decision could not be incorrect as a matter of law.  Notwithstanding that there was no presumption and that there was always a spectrum on which a particular business had to be placed, it was legitimate for the UT to conclude that the FTT had erred in law because it was ‘plainly’ the case – on the basis of the previous legal authorities – that the services provided were ‘no way near’ sufficient to place the business at the BPR end of the spectrum. On this basis, there was no realistic prospect of success before the Court of Appeal and leave was therefore denied.

The Pawson case was unusual in that it involved a FHL where very few additional services were provided to the holidaymakers. Thus, the conclusion that it was ‘plainly’ wrong as a matter of law for it to qualify for BPR was not a difficult one to reach.  Had the services been a little more substantial – taking the business closer to the middle of the spectrum – it would presumably have been more difficult for the appellate courts to conclude that the decision was ‘plainly’ wrong.

It is therefore not all bad news for the owner of FHLs but clearly significantly more services will be required to be provided to the holidaymakers for BPR to be available. It will be interesting to see how HMRC now apply this decision. Will they now fight all BPR claims in relation to FHLs and where will they draw the line? Will they try to now be resistant in relation to all businesses which involve the occupation of land for some kind of return? A clarification of the law in this area is now surely required.

If you would like further information in relation to the above proposals please contact the TaxDesk on 0845 4900 509 and ask for Ian Maston.